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What does High Times interest earned indicate?

Times interest earned ratio measures a company's ability to continue to service its debt. It is an indicator to tell if a company is running into financial trouble. A high ratio means that a company is able to meet its interest obligations because earnings are significantly greater than annual interest obligations.

What is the formula for time interest earned?

Time interest earned ratio is calculated by dividing earnings before interest and tax (EBIT) for a period with interest expense for the period as follows: Both figures in the above formula can be obtained from the income statement of a company.


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